The Jakarta Post
Sept 18, 2017
Bank Indonesia’s (BI) latest regulation to strengthen the monitoring and oversight of financial technology (fintech) operators and money changers should be welcomed as another boost to the concerted campaign against money laundering.
Money laundering is believed to still be a rampant practice in the country, as evidenced by the large number of US and Singapore dollar banknotes seized by the Corruption Eradication Commission (KPK) from graft suspects during stings. Early this year, Bank Indonesia and the National Police uncovered almost 800 illegal money changers in several provinces. In fact, many gold and jewelry shops were suspected to be illegally providing money exchange services.
As the financial intelligence unit, the Financial Transaction Reports and Analysis Center (PPATK) has strengthened its monitoring of suspicious transactions through the banking system and non-bank financial companies, criminals have increasingly laundered their ill-gotten money through money changers.
And as the estimated 135 fintech firms/e-wallets now play a growing role in the national financial system, this industry is equally vulnerable to be used as a new vehicle for money laundering. Even remittances have been identified by the G-20 group’s Financial Action Taskforce (FATF) against money laundering being highly prone to abuse by criminals.
The new regulation requires non-bank payment system operators to implement prevention measures against money laundering through comprehensive customer due diligence (CDD) and to report any suspicious transactions to the PPATK and to freeze suspicious accounts. BI will also tighten the eligibility requirements for owners and directors of money exchange and remittance service providers.
One of the main problems is the weakness in implementing the necessary safeguards and control mechanisms relating to customer due diligence requirements. Because of the absence of durable relationships with customers and the nature of transactions, money remitters and currency exchange providers often find it particularly challenging to perform ongoing monitoring to detect anomalies and establish risk profiles.
The nearly 800 illegal money changers that were uncovered early this year are believed to have operated for many years before they were uncovered by BI and the National Police. Studies and surveys by the FATF have concluded that money laundering through remittance and currency exchange providers poses a number of challenges for regulators and law enforcement authorities.
At the same time, there is low detection of money laundering in comparison to the size of the industry as a whole. Money laundering in the sector has attracted criminals, because these payment system providers offer speedy transmission (in the case of remittances), transactions are in cash with very low threshold amounts and customer identification procedures often less than stringent compared to the opening of a bank account.
The use of forged identity documents is another method commonly identified and which appears to be increasingly used. This is particularly difficult to detect by currency exchange providers, especially due to the increasing quality of forged papers and given that clients are often occasional customers and that the business relationship is not of a continuous nature. False identities are often used to hamper investigation of transfers or other financial operations.